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Reporting

Implications
of New Auditing and
Accounting Standards
Issue No. 2 — September 2010

CICA
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

This CICA publication has been developed by the Task Force on Audit
Reporting Implications of the New Canadian Auditing Standards. The
material in this Guide represents the views of the Task Force.

Practitioners are expected to use professional judgment in


determining whether the material in this Guide is both appropriate
and relevant to the circumstances of each audit engagement. This
Guide has not been issued under the authority of the Auditing and
Assurance Standards Board (AASB).
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Introduction
There are a number of significant changes taking place to accounting and
auditing standards in Canada. The Auditing and Assurance Standards Board
(AASB) recognizes that these changes may have an impact on the form and
content of practitioners’ reports. The AASB formed a Task Force to develop
guidance that will address complex reporting issues that may arise during
this period of change with a view to promoting consistency in reporting.

Changes to accounting standards


The Accounting Standards Board’s (AcSB) 2006-2011 strategic plan calls
for the pursuit of different reporting strategies for each major category of
reporting entity. As a result, the CICA Handbook – Accounting has been
restructured to move away from a single financial reporting framework
referred to as Canadian generally accepted accounting principles (GAAP)
to include various different financial reporting frameworks in Canadian
GAAP. These different financial reporting frameworks in Canadian GAAP are
identified in the CICA Handbook – Accounting as follows:
• Part I — International Financial Reporting Standards (IFRSs)
• Part II — Accounting standards for private enterprises
• Part III — Accounting standards for not-for-profit organizations
• Part IV — Accounting standards for pension plans
• Part V — Canadian GAAP prior to the adoption of Parts I, II, III or IV
(Pre‑changeover accounting standards)

Part I is effective for interim and annual financial statements relating to


fiscal years beginning on or after January 1, 2011. Earlier application is
permitted. Parts II and IV are effective for annual financial statements relating
to fiscal years beginning on or after January 1, 2011. Earlier application is
permitted. Part III has yet to be completed and its effective date has yet to
be determined. If an entity chooses not to adopt the standards applicable
to it before their effective date, it continues to follow Part V, pre-changeover
accounting standards, prior to that date.

The CICA Public Sector Accounting Handbook contains the accounting


standards for federal, provincial, territorial and local governments and
government organizations. The Public Sector Accounting Board (PSAB)
has made changes to its standards clarifying which standards apply to
government organizations. For example, government business enterprises
will be required to follow IFRSs for periods beginning on or after January
1, 2011. On the same date, the existing category of government business-
type organizations in the CICA Public Sector Accounting Handbook will
cease to exist and become categorized as other government organizations.
Other government organizations will be permitted to choose to prepare
their financial statements in accordance with public sector standards or
with IFRSs, based on the needs of users of their financial statements. PSAB
is also proposing to bring government not-for-profit organizations into its
Handbook.

Changes to auditing standards


The AASB has adopted International Standards on Auditing as Canadian
Auditing Standards (CASs) effective for audits of financial statements
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

and other historical financial information for periods ending on or after


December 14, 2010. The CASs are contained in Part I of the CICA Handbook –
Assurance. The standards in effect before the effective date of the CASs have
been retained in Part II of the CICA Handbook – Assurance.

Purpose of this Guide


With the complexities relating to the changes to accounting and auditing
standards, the purpose of this Guide is to promote consistency in the form
and content of practitioners’ reports by providing guidance with respect to
commonly occurring circumstances. This Guide does not amend or override
auditing or review standards, the texts of which alone are authoritative, nor
does it necessarily address all audit reporting changes resulting from the new
CASs. With respect to audit reporting on financial statements for periods
ending on or after December 14, 2010, readers are referred to the following
CASs for guidance:
• CAS 700, Forming an Opinion and Reporting on Financial Statements
• CAS 705, Modifications to the Opinion in the Independent Auditor’s Report
• CAS 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in
the Independent Auditor’s Report
• CAS 710, Comparative Information — Corresponding Figures and
Comparative Financial Statements
• CAS 800, Special Considerations — Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks
• CAS 805, Special Considerations — Audits of Single Financial Statements
and Special Elements, Accounts or Items of a Financial Statement
• CAS 810, Engagements to Report on Summary Financial Statements

Readers are also referred to the following useful guides :


• CICA Explanatory Memorandum “Reporting on Financial Statements
under Canadian Auditing Standards” that helps stakeholders understand
the decision-making process followed by the auditor when reporting on
financial statements, and the form of the auditor’s report, under the CASs.
• CICA Guide “Assurance Implications of the Changeover to IFRSs” that
provides guidance to auditors dealing with significant auditing and
assurance matters arising from their clients’ changeover from pre-
changeover accounting standards to IFRSs.

Format of this Guide


This Guide will be updated periodically as further reporting issues are
identified. The Guide will indicate its version date and the nature and extent
of changes since the last version will be highlighted in each new version.

The Guide presents a series of issues in Question and Answer format. It


also presents a series of Illustrative Reports. These are designed to help
practitioners understand and apply requirements and supporting guidance
issued by the AASB relating to reporting.

Further Information
Staff contact: Eric R Turner, CA
Email: eric.turner@cica.ca
Telephone: (416) 204-3240
Fax: (416) 204-3408
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Table of Contents
Questions & Answers Relating to Reporting
on New Accounting Frameworks................................................................1

Questions & Answers on Other Reporting Matters.......................... 21

Illustrative Reports....................................................................................... 28

Introduction to Illustrative Reports.................................................... 28

First Financial Statements under


International Financial Reporting Standards................................. 29

First Financial Statements under Canadian


Accounting Standards for Private Enterprises.............................. 37

Special Purpose Financial Statements............................................. 47

Summary of Changes to this Guide.......................................................57

Task Force on Audit Reporting Implications


of New Canadian Auditing Standards...................................................59
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

QUESTIONS & ANSWERS RELATING TO REPORTING


ON NEW ACCOUNTING FRAMEWORKS
Q&A 1(a) Application of Auditing Standards to the Opening Statement of
Financial Position

Q&A 1(b) Reference to the Financial Reporting Framework in the


Practitioner’s Report

Q&A 1(c) Describing in the Opinion Paragraph in the Auditor’s Report the
Information the Financial Statements Are Designed to Present

Q&A 1(d) Comparative Information and its Effect on the Auditor’s Report on
the First Financial Statements Prepared in Accordance with a New
Financial Reporting Framework

Q&A 1(e) Describing the Financial Reporting Framework When an Entity


Uses Pre-changeover Accounting Standards in 2010

Q&A 1(f) Early Adoption of a New Financial Reporting Framework and the
Need for an Emphasis of Matter Paragraph

Q&A 1(g) Referring to Canadian GAAP in the Auditor’s Report on Financial


Statements Prepared in Accordance with a New Financial
Reporting Framework

Q&A 1(h) The Review Engagement Report on the First Financial Statements
Prepared in Accordance with Accounting Standards for Private
Enterprises

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 1(a) Application of Auditing Standards to the Opening


Statement of Financial Position
Which auditing standards does the auditor apply to the audit of the
opening statement of financial position when an entity transitions to
a new financial reporting framework for its 2011 financial statements,
and what is the form of the auditor’s report?
1. The transition provisions in certain parts of the CICA Handbook
– Accounting require that the financial statements in the first
year of adoption of a new financial reporting framework contain
an opening statement of financial position.1 Existing auditing
standards apply for audits of financial statements for periods
ending before December 14, 2010. The CASs apply for audits
of financial statements for periods ending on or after this date.
Earlier adoption of the CASs is not permitted. The question of
which auditing standards to apply arises when the first financial
statements prepared in accordance with a new financial reporting
framework are for a period ending after December 14, 2010 and
those financial statements include an opening statement of
financial position as at a date prior to December 14, 2010. For
example, for an entity with a calendar year end, the entity’s first
financial statements would include the entity’s statements of
financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening statement of financial position).

2. During an entity’s changeover to a new financial reporting


framework, the entity’s auditor would apply the CASs in auditing
the December 31, 2011 and December 31, 2010 statements of
financial position because these financial statement periods are
after the effective date of the CASs.

3. There are various supportable views on whether existing auditing


standards or the CASs should be applied to the January 1, 2010
opening statement of financial position. Therefore, in auditing this
financial statement, the auditor may choose to apply:
(a) the existing auditing standards;2
(b) the CASs; or
(c) a combination of both.

4. In all circumstances, the auditor’s report would make reference


to Canadian generally accepted auditing standards (GAAS). The
auditor’s report on the 2011 financial statements would be in the
form required by CAS 700, Forming an Opinion and Reporting on
Financial Statements, as set out in Illustrative Reports in this Guide.


1
See, for example, First-Time Adoption, paragraph 1500.05, in Part II of the CICA Handbook – Accounting.
Similar requirements are contained in other Parts of the CICA Handbook – Accounting.
2
For audits of opening statements of financial position as at December 14, 2010, or thereafter, only the CASs
apply.

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Q&A 1(b) Reference to the Financial Reporting Framework


in the Practitioner’s Report
How should the practitioner’s report refer to the financial reporting
framework when financial statements are prepared in accordance with
one of the financial reporting frameworks of the CICA Handbook –
Accounting or the CICA Public Sector Accounting Handbook?
Background
1. Unlike Section 5400, The Auditor’s Standard Report, which focuses
on a single financial reporting framework (Canadian GAAP), the
CASs do not specify a particular financial reporting framework as
being the acceptable financial reporting framework for general
purpose financial statements. CAS 210, Agreeing the Terms of Audit
Engagements, indicates that, at present there is no objective and
authoritative basis that has been generally recognized globally
for judging acceptability of general purpose frameworks. In the
absence of such a basis, financial reporting standards established
by organizations that are authorized or recognized to promulgate
standards are presumed to be acceptable for general purpose
financial statements. The auditor is required by paragraph 6 of
CAS 210 to determine whether the financial reporting framework
to be applied in the preparation of the financial statements is
acceptable.

2. The following general principles have been followed to promote


consistency in the wording of the auditor’s report:
(a) The report would clearly describe the financial reporting
framework applied by management in preparing the financial
statements. Because the CICA Handbook – Accounting has
been restructured to include different financial reporting
frameworks, use of the term “Canadian generally accepted
accounting principles” is not specific enough to help readers
identify which financial reporting framework has been used.
(b) The reports for different entities would describe the same
financial reporting framework in the same way. For example,
a report on the financial statements of a private enterprise
that prepares its financial statements in accordance with
International Financial Reporting Standards (IFRSs) should
contain the same description of the financial reporting
framework as a report on the financial statements of a
publicly accountable enterprise that also prepares its financial
statements in accordance with IFRSs.
(c) The report would normally maintain consistency with how
the entity describes the financial reporting framework in its
financial statements. Certain parts of the CICA Handbook
– Accounting require that the basis of presentation be
specifically stated in the financial statements.3

Financial statements prepared in accordance with IFRSs


3. In considering how to describe, in the practitioner’s report, financial
statements prepared in accordance with IFRSs, it is noted that:
(a) IFRSs are a separately recognized financial reporting
framework that is used in many countries around the globe;
3
See, for example, IAS 1 Presentation of Financial Statements, paragraph 16, in Part I, and General Standards
of Financial Statement Presentation, paragraph 1400.16, in Part II, of the CICA Handbook – Accounting.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

(b) IFRSs as issued by the International Accounting Standards


Board (IASB) are incorporated into the CICA Handbook –
Accounting without modification;
(c) Canadian entities that are reporting issuers are required by
Canadian securities regulations to report compliance with
“IFRSs”, defined as being International Financial Reporting
Standards as issued by the International Accounting Standards
Board. An auditor may describe the financial reporting
framework in the auditor’s report as either “International
Financial Reporting Standards” or “International Financial
Reporting Standards as issued by the International Accounting
Standards Board” in complying with these securities
regulations; and
(d) Canadian entities that are registrants in the securities markets
in other jurisdictions are often required to report compliance
with “International Financial Reporting Standards as issued by
the International Accounting Standards Board.” This wording
may be required to be reflected in the auditor’s report.
In Canada, the use of the additional words “as issued by the
International Accounting Standards Board” is redundant
because, as stated above, IFRSs as issued by the IASB have been
incorporated unchanged into the CICA Handbook – Accounting.
However, including these words in the description of the financial
reporting framework is not incorrect or prohibited. Canadian
securities legislation requires use of the phrase “International
Financial Reporting Standards” in the auditor’s report. This
is the wording that is used in the Illustrative Reports in this
Guide. When other legislation or regulation requires the use of
different wording to describe the financial reporting framework
(for example, including the additional words noted above),
the auditor would comply with that legislation or regulation.
Paragraph 15 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, requires the auditor to evaluate whether the
description of the financial reporting framework is adequate.

Financial statements prepared in accordance with other financial


reporting frameworks in the CICA Handbook – Accounting
4. In considering how to describe, in the practitioner’s report, financial
statements prepared in accordance with other financial reporting
frameworks in the CICA Handbook – Accounting, the principles
in paragraph 2 of this Q&A have been considered. Further,
paragraph 37 of CAS 700 requires the auditor’s opinion to identify
the jurisdiction of origin. Accordingly, for accounting standards for
private enterprises, the description in reports would be “Canadian
accounting standards for private enterprises.” A similar approach
has been taken for the other financial reporting frameworks in the
CICA Handbook – Accounting. For example, accounting standards
for pension plans in Part IV of the CICA Handbook – Accounting
would be referred to as “Canadian accounting standards for
pension plans.”

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Financial statements prepared in accordance with accounting


standards in the CICA Public Sector Accounting Handbook
5. The financial reporting framework in a practitioner’s report on
financial statements prepared in accordance with the accounting
standards in the CICA Public Sector Accounting Handbook would
be described as “Canadian public sector accounting standards.”4

Performing an audit in accordance with Part II, or a review in accordance


with either Part I or II, of the CICA Handbook – Assurance
6. The approach set out in this Q&A describing the financial reporting
framework in accordance with which the financial statements have
been prepared may also be used when a practitioner is performing
an audit in accordance with the standards in Part II of the CICA
Handbook – Assurance and reports in accordance with Section
5400, The Auditor’s Standard Report, or a review in accordance
with Section 8200, Public Accountant’s Review of Financial
Statements. This would be applicable, for example, when an entity
early adopts a new financial reporting framework such as IFRSs or
accounting standards for private enterprises.

4
The Public Sector Accounting Board is considering a project to amend Disclosure of Accounting Policies,
paragraph PS 2100.07, of the CICA Public Sector Accounting Handbook, to be consistent with the wording
in paragraph 5 of this Q&A. Paragraph PS 2100.07 contains different wording in an example of the
source of the basis of accounting set out in the description of significant accounting policies in financial
statements.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 1(c) Describing in the Opinion Paragraph in the


Auditor’s Report the Information the Financial Statements
Are Designed to Present
When an entity adopts a new financial reporting framework, how
should the auditor describe in the opinion paragraph in the auditor’s
report the information that the financial statements are designed to
present?
Background
1. Paragraph A29 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, indicates that the auditor’s opinion states
that the financial statements present fairly, in all material respects,
the information that the financial statements are designed to
present, (for example, in the case of many general purpose
frameworks), the financial position of the entity as at the end of the
period and the entity’s financial performance and cash flows for the
period then ended.

2. The Auditor’s Standard Report, paragraph 5400.14, requires the


auditor, in the opinion paragraph, to express his or her opinion
whether the financial statements present fairly, in all material
respects, the financial position, results of operations and cash
flows of the entity in accordance with Canadian generally accepted
accounting principles.

3. Because there are various different financial reporting frameworks


in Canadian GAAP, the auditor needs to consider the requirements
of the respective financial reporting framework when stating the
auditor’s opinion in the auditor’s report under either CAS 700 or
Section 5400. The following paragraphs provide references to
the requirements of IFRSs and accounting standards for private
enterprises and the related audit opinion wording.

International Financial Reporting Standards


(Part I of the CICA Handbook – Accounting)
4. IAS 1, Presentation of Financial Statements, paragraph 15 states
that financial statements shall present fairly the financial position,
financial performance and cash flows of an entity.

5. Therefore, the auditor’s opinion would be worded as follows, when


the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and its financial performance and its cash flows for the
[period] then ended in accordance with International Financial
Reporting Standards.”

Accounting standards for private enterprises


(Part II of the CICA Handbook – Accounting)
6. General Standards of Financial Statement Presentation, paragraph
1400.03, in Part II of the CICA Handbook – Accounting, states
that financial statements shall present fairly in accordance with
generally accepted accounting principles the financial position,
results of operations and cash flows of an entity.

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

7. Therefore, the auditor’s opinion would be worded as follows, when


the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and the results of its operations and its cash flows for
the [period] then ended in accordance with Canadian accounting
standards for private enterprises.”

Accounting standards for not-for-profit organizations


(Part III of the CICA Handbook – Accounting)
8. [to be completed once these accounting standards are finalized.]

Accounting standards for pension plans


(Part IV of the CICA Handbook – Accounting)
9. Pension Plans, paragraph 4600.10, in Part IV of the CICA Handbook
– Accounting, states that financial statements shall consist of:
(a) a statement of financial position;
(b) a statement of changes in net assets available for benefits; and
(c) a statement of changes in pension obligations.

10. Therefore, the auditor’s opinion would be worded as follows, when


the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Pension Plan]
as at [Date], and the changes in its net assets available for benefits
and changes in its pension obligations for the [period] then ended
in accordance with Canadian accounting standards for pension
plans.”

Pre-changeover accounting standards


(Part V of the CICA Handbook – Accounting)
11. General Standards of Financial Statement Presentation,
paragraph 1400.03, in Part V of the CICA Handbook – Accounting,
states that financial statements shall present fairly in accordance
with generally accepted accounting principles the financial
position, results of operations and cash flows of an entity.

12. Therefore, the auditor’s opinion would be worded as follows, when


the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and the results of its operations and its cash flows for
the [period] then ended in accordance with Canadian generally
accepted accounting principles.”

Public sector accounting standards


(CICA Public Sector Accounting Handbook)
13. Financial Statement Principles, paragraph PS 1200.012, in the
CICA Public Sector Accounting Handbook, states that financial
statements should present any information required for the
fair presentation of a government’s financial position, results of
operations, changes in net debt, and cash flow.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

14. Therefore, the auditor’s opinion would be worded as follows, when


the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the government]
as at [Date], and the results of its operations, changes in its net
debt, and its cash flows for the [period] then ended in accordance
with Canadian public sector accounting standards.”

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Q&A 1(d) Comparative Information and its Effect on


the Auditor’s Report on the First Financial Statements
Prepared in Accordance with a New Financial Reporting
Framework
How does the difference between “comparative financial statements”
and “corresponding figures” under the CASs affect the auditor’s
report on the first financial statements when an entity transitions to a
new financial reporting framework?
1. The distinction between the two approaches discussed in
Q&A 2(a) is important with respect to audits of the first financial
statements under new financial reporting frameworks that contain
transition provisions requiring comparative information, including
related notes, to be presented. For example, for an entity with a
calendar year end, the entity’s first financial statements prepared
in accordance with a new financial reporting framework would
include the entity’s statements of financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening statement of financial position).

Reporting on first financial statements on transition to a


new financial reporting framework when the auditor’s report
refers to each period for which financial statements are presented
2. The auditor may be responsible for reporting on all financial
statement periods presented (for example, if the entity is a
reporting issuer), or the auditor may have agreed to undertake an
engagement to report on all financial statements presented, when
such financial statements are prepared in accordance with a new
financial reporting framework (for example, IFRSs or accounting
standards for private enterprises). If so, the auditor is required
to issue an audit opinion on all three balance sheets and two
operating periods prepared in accordance with the new financial
reporting framework, using the audit reporting approach for
comparative financial statements discussed in Q&A 2(a).

3. While the auditor may have audited the financial statements for the
years ended December 31, 2010 and December 31, 2009 prepared
in accordance with the pre-changeover accounting standards, the
auditor will not have previously audited the financial statements
for those periods prepared in accordance with the new financial
reporting framework.

4. When reporting on the first financial statements for 2011 prepared


in accordance with the new financial reporting framework, the
auditor will be reporting on the December 31, 2010 financial
statements and the January 1, 2010 opening statement of financial
position prepared in accordance with the new financial reporting
framework for the first time. Accordingly, the auditor will be
required to obtain sufficient appropriate audit evidence to support
the auditor’s opinion on those financial statements.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

5. The auditor is able to use the work performed in auditing the


financial statements for the years ended December 31, 2010 and
December 31, 2009 prepared in accordance with pre-changeover
accounting standards. However, because the comparative
financial statements are prepared in accordance with the new
financial reporting framework, the auditor will have to perform
additional audit procedures to support the auditor’s opinion on
those financial statements, even when the financial statements
prepared in accordance with the new financial reporting framework
do not appear to be significantly different from those prepared
in accordance with pre-changeover accounting standards. (See
Illustrative Report 1(b) in this Guide for an example of an auditor’s
report that extends to the comparative financial statements.)

Reporting on first financial statements on the transition


to a new financial reporting framework when the auditor’s
report refers to the current period only
6. While the auditor may have audited the financial statements
for the years ended December 31, 2010 and December 31, 2009
prepared in accordance with the pre-changeover accounting
standards, the auditor will not have previously audited the
financial statements for those periods prepared in accordance
with the new financial reporting framework.

7. When the auditor’s report refers to the current period only,


using the audit reporting approach for corresponding figures
discussed in Q&A 2(a), there may be an incorrect presumption
by readers of the auditor’s report on the first financial
statements prepared in accordance with the financial reporting
framework that the auditor has previously issued an auditor’s
report on the comparative information.

8. Unless the auditor has been specifically engaged to perform


an audit of the December 31, 2010 financial statements and the
January 1, 2010 opening statement of financial position prepared
in accordance with the new financial reporting framework, these
financial statements are unaudited.

9. There are two possible courses of action:


(a) The auditor can be engaged to issue only an audit
opinion on the current period’s financial statements. In
such a case, the comparative information is presented
in the form of corresponding figures and the auditor
complies with paragraph 14 of CAS 710, Comparative
Information — Corresponding Figures and Comparative
Financial Statements, that requires the auditor to state in
an Other Matter paragraph in the auditor’s report that the
corresponding figures are unaudited. The Other Matter
paragraph is included in the auditor’s report irrespective of
whether:
(i) the corresponding figures are marked as unaudited; or
(ii) the notes to the financial statements indicate that
the auditor has not audited, and does not express an
opinion on, the corresponding figures.

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

(See Illustrative Report 1(c) in this Guide when the auditor’s


report does not extend to the corresponding figures.)
(b) Alternatively, the auditor may discuss with the entity
whether the terms of the engagement need to extend to
all financial statement periods presented. In such a case,
the comparative information is presented in the form of
comparative financial statements and the auditor’s opinion
extends to each financial statement period presented. (Refer
to paragraphs 2-5 above.)

10. Paragraph 14 of CAS 710 also indicates that a statement in an


Other Matter paragraph referred to in paragraph 9(a) does
not, however, relieve the auditor of the requirement to obtain
sufficient appropriate audit evidence that the opening balances
do not contain misstatements that materially affect the current
period’s financial statements in accordance with paragraph 6 of
CAS 510, Initial Audit Engagements — Opening Balances.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 1(e) Describing the Financial Reporting Framework


When an Entity Uses Pre-Changeover Accounting
Standards in 2010
How is the financial reporting framework described in the
practitioner’s report when an entity uses pre-changeover
accounting standards and, in particular, differential reporting
options in its financial statements for periods ending on or after
December 14, 2010?
Background
1. Pre-changeover accounting standards permit certain entities to
prepare their financial statements using differential reporting
options.

2. For audits of financial statements for periods ending before


December 14, 2010, Part II of the CICA Handbook – Assurance
applies, and Section 5400, The Auditor’s Standard Report, requires
the introductory paragraph in the auditor’s report to indicate that
the financial statements have been prepared in accordance with
Canadian GAAP using differential reporting options available to
non-publicly accountable enterprises.

3. For audits of financial statements for periods ending on or after


December 14, 2010, Part I of the CICA Handbook – Assurance
applies, and the CASs do not specifically address differential
reporting options or how the auditor should report when the
entity has prepared financial statements using those options.
However, paragraph 6 of CAS 210, Agreeing the Terms of Audit
Engagements, requires that the auditor determine whether
the applicable financial reporting framework is acceptable and
paragraph 15 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, requires the auditor to evaluate whether the
financial statements adequately refer to or describe the applicable
financial reporting framework.

4. For reviews of financial statements for periods ending before


and after December 14, 2010, Section 8200, Public Accountant’s
Review of Financial Statements, applies. When reporting on an
entity that prepares its financial statements in accordance with
pre-changeover accounting standards using differential reporting
options, Section 8200 requires the public accountant to indicate
in the scope paragraph that the financial statements have been
prepared in accordance with Canadian GAAP using differential
reporting options available to non-publicly accountable enterprises.

Description of the financial reporting framework in the auditor’s report


5. The auditor’s report on financial statements for periods ending
on or after December 14, 2010 prepared in accordance with
pre‑changeover accounting standards, including differential
reporting options, will be in the form required by CAS 700. The
description of the financial reporting framework in the auditor’s
report would be “Canadian generally accepted accounting
principles” and would not make separate reference to differential
reporting options. This is because differential reporting options are

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

accounting policies the entity selects and applies within a financial


reporting framework and are not a separate financial reporting
framework. The notes to the financial statements will describe the
accounting policies selected by the entity, which may include the
use of differential reporting options, if appropriate.

6. Entities that currently use differential reporting options may


transition to accounting standards for private enterprises on
January 1, 2011. While accounting standards for private enterprises
include certain options that currently exist as differential reporting
options, the auditor would not make separate reference to these
differential reporting options when describing the financial
reporting framework in the auditor’s report for the same reason as
discussed in paragraph 5.

Description of the financial reporting framework in the


public accountant’s review engagement report
7. The review engagement report on financial statements for periods
ending on or after December 14, 2010 prepared in accordance
with pre-changeover accounting standards, including differential
reporting options, will be in the form required by Section 8200.
Paragraph 8200.51 requires that the review engagement report
be presented as set out in General Review Standards, paragraphs
8100.26 and 8100.34, as appropriate, except that the scope
paragraph should:
(a) indicate that the financial statements have been prepared in
accordance with Canadian generally accepted accounting
principles using differential reporting options available to non-
publicly accountable enterprises; and
(b) (refer to the summary of accounting policies in the financial
statements that describes each differential reporting option
applied.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 1(f) Early Adoption of a New Financial Reporting


Framework and the Need for an Emphasis of Matter
Paragraph
When an entity early adopts a new financial reporting framework,
should the auditor include an Emphasis of Matter paragraph in
the auditor’s report referring to the change in financial reporting
framework?
Background
1. For audits of financial statements for periods ending before
December 14, 2010, Part II of the CICA Handbook – Assurance
applies. Section 5701, Other Reporting Matters, provides guidance
on additional explanations in the auditor’s report, but does not
require use of Emphasis of Matter paragraphs.

2. For audits of financial statements for periods ending on or after


December 14, 2010, Part I of the CICA Handbook – Assurance
applies. Paragraph 6 of CAS 706, Emphasis of Matter Paragraphs
and Other Matter Paragraphs in the Independent Auditor’s Report,
states that if the auditor considers it necessary to draw users’
attention to a matter presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance
that it is fundamental to users’ understanding of the financial
statements, the auditor shall include an Emphasis of Matter
paragraph in the auditor’s report provided the auditor has obtained
sufficient appropriate audit evidence that the matter is not
materially misstated in the financial statements.

3. Paragraph A1 of CAS 706 provides examples of circumstances


where the auditor may consider it necessary to include an
Emphasis of Matter paragraph. One example provided relates
to the early application (where permitted) of a new accounting
standard (for example, a new International Financial Reporting
Standard) that has a pervasive effect on the financial statements in
advance of its effective date.

4. When an entity early adopts a new financial reporting framework,


this may have a pervasive effect on the entity’s financial statements
in advance of any required effective date to adopt a new financial
reporting framework.

The need for an Emphasis of Matter paragraph


5. The early adoption of a new financial reporting framework can be
contrasted with the early adoption of a new accounting standard in
the following ways:
(a) The entity’s financial statements will contain additional
disclosures not presented when an entity early adopts a new
accounting standard, including:
(i) an opening balance sheet (statement of financial position)
on the transition date; and
(ii) a reconciliation of certain key financial information
reported in the entity’s most recent previously issued

14
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

financial statements to the same information under the


new financial reporting framework.
(b) The auditor’s report will refer to the new financial reporting
framework and the opening balance sheet (statement of
financial position) and, therefore, will be different from the
auditor’s report for the prior period.

6. Because of the more extensive presentation and disclosures in


the financial statements on the early adoption of a new financial
reporting framework, and the fact that the auditor’s report will be
different from the prior period, there is much less likelihood that
the auditor will consider it necessary to draw users’ attention to
this matter through an Emphasis of Matter paragraph. Illustrative
Reports in this Guide do not include such an Emphasis of Matter
paragraph.

15
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A1(g) Referring to Canadian GAAP in the Auditor’s


Report on Financial Statements Prepared in Accordance
With a New Financial Reporting Framework
Can an auditor’s report on financial statements prepared in
accordance with a new financial reporting framework in the CICA
Handbook – Accounting also make reference to Canadian GAAP and, if
so, how should this reference be made in the auditor’s report?
Background
1. Incorporating or other governing legislation, or a contract, may
require that an entity prepare its financial statements in accordance
with Canadian GAAP. Canadian GAAP includes different financial
reporting frameworks in Parts I to V of the CICA Handbook –
Accounting. Consequently, when an entity makes reference to the
specific financial reporting framework it has applied in preparing
its financial statements, making a separate reference to Canadian
GAAP might be viewed as redundant.

2. The Introductions to Parts I, II and IV of the CICA Handbook


– Accounting indicate that an entity that prepares its financial
statements in accordance with the respective part of the Handbook
“is permitted, but not required, to make the additional statement
that its financial statements are in accordance with Canadian
GAAP.”5 Further, some regulators, such as the Canadian Securities
Administrators and the Office of the Superintendent of Financial
Institutions, have indicated that they will not require such an
additional statement in financial statements prepared by entities
they regulate. It is the decision of the entity whether or not to
specifically refer to Canadian GAAP. An entity may decide to
demonstrate compliance not only with a specific financial reporting
framework but also with Canadian GAAP. Auditors are required by
paragraph 15 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, to evaluate whether the financial statements
adequately refer to or describe the applicable financial reporting
framework.

3. Irrespective of whether the entity decides to also disclose


compliance with Canadian GAAP, it is the auditor’s decision
whether the auditor’s report makes specific reference to Canadian
GAAP. As long as the auditor’s report makes reference to the
financial reporting framework applied in preparing the financial
statements (for example, in the manner set out in illustrative
reports in this Guide), there is no need for the auditor’s report
to make specific reference to Canadian GAAP, unless the auditor
considers that he or she is required to do so under regulation or
legislation.

4. Auditors may decide to make specific reference to Canadian


GAAP in the auditor’s report to maintain consistency with how the
entity describes the financial reporting framework in its financial
statements. However, even when the entity does not make specific


5
See, for example, Introduction to Part I, paragraph I.10, and Introduction to Part II, paragraph II.5, of the
CICA Handbook – Accounting.

16
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

reference to Canadian GAAP in its financial statements, auditors


may also decide to make specific reference to Canadian GAAP
when they believe that it is important to readers of the auditor’s
report to know that in the auditor’s opinion the financial statements
comply with Canadian GAAP.

5. When referring specifically to Canadian GAAP, and when


evaluating whether the financial statements adequately refer
to or describe the applicable financial reporting framework in
accordance with paragraph 15 of CAS 700, the auditor would
consider whether the reference clearly sets out the relationship
between Canadian GAAP and the financial reporting framework.

6. Paragraphs A8 and A32 of CAS 700 indicate that when the


financial statements are prepared in accordance with two
financial reporting frameworks the auditor’s opinions may be
expressed separately or in a single sentence (for example, “the
financial statements are presented fairly, in all material respects,
in accordance with accounting principles generally accepted in
Jurisdiction X and with IFRS”). This form of wording should not be
used in Canada when referring to accounting standards in Parts I
to V of the CICA Handbook – Accounting — for example, “Canadian
accounting standards for private enterprises and Canadian
generally accepted accounting principles” — as it might imply
that the two are separate financial reporting frameworks, which is
not the case. Further, referring to a financial reporting framework
as “part of” Canadian GAAP may imply that the entity has not
complied with all of Canadian GAAP.

7. The following sets out examples of descriptions of the financial


reporting framework that clearly sets out the relationship between
Parts I,II and IV of the CICA Handbook – Accounting and Canadian
GAAP:
(a) For Part I of the CICA Handbook – Accounting: “International
Financial Reporting Standards, which is one of the financial
reporting frameworks included in Canadian generally accepted
accounting principles.”
(b) For Part II of the CICA Handbook – Accounting: “Canadian
accounting standards for private enterprises, which is one
of the financial reporting frameworks included in Canadian
generally accepted accounting principles.”
(c) For Part IV of the CICA Handbook – Accounting: “Canadian
accounting standards for pension plans, which is one of the
financial reporting frameworks included in Canadian generally
accepted accounting principles.”

8. Such wording would ordinarily be placed in the opinion paragraph


of the auditor’s report. When the auditor’s report includes a
separate section dealing with other reporting responsibilities, as
discussed in paragraphs 38 and 39 of CAS 700, the auditor may
consider it to be more appropriate to include such wording in that
separate section.

17
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 1(h) The Review Engagement Report on the First


Financial Statements Prepared in Accordance with
Accounting Standards for Private Enterprises
Q&A 1(h)(i) What guidance does a practitioner use in considering the
form of review engagement report on comparative information in the
first financial statements prepared in accordance with accounting
standards for private enterprises?
1. For reviews of financial statements, Section 8200, Public
Accountant’s Review of Financial Statements, applies. Section 8200
also makes reference to Section 8100, General Review Standards.

2. Paragraph 8100.41 requires that when comparative figures are


neither audited nor reviewed, and disclosure of such matters is not
made in the information on which the public accountant reports,
disclosure should be made in a separate and final paragraph of the
review engagement report.

3. Neither Section 8100 nor Section 8200 provides guidance


dealing with comparative information and its effect on the review
engagement report. Therefore, practitioners may refer to Q&As
1(d) and 2(a) in this Guide that deal with comparative information
in the context of the auditor’s report. Similar principles apply in the
context of a review engagement. The application of Q&As 1(d) and
2(a) to review engagements is discussed further below.

Q&A 1(h)(ii) How does the practitioner apply the guidance in Q&As
1(d) and 2(a) in this Guide to the review engagement report on the
first financial statements under accounting standards for private
enterprises?
4. The guidance in Q&As 1(d) and 2(a) is relevant to deciding on
the form of review engagement report with respect to the first
financial statements under accounting standards for private
enterprises. These standards contain transition provisions requiring
comparative information, including related notes to be presented.
For example, for an entity with a calendar year end, the entity’s
first financial statements prepared in accordance with accounting
standards for private enterprises would include a balance sheet as
at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening balance sheet prepared in accordance
with accounting standards for private enterprises).

Reporting on the first financial statements on the transition to accounting


standards for private enterprises when the review engagement report refers
to the current period only
5. While the practitioner may have reviewed the financial statements
for the years ended December 31, 2010 and December 31, 2009
prepared in accordance with the pre-changeover accounting
standards, the practitioner will not have previously reviewed the
financial statements for those periods prepared in accordance with
accounting standards for private enterprises.

18
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

6. When the practitioner’s report refers to the current period only,


using the reporting approach for corresponding figures discussed
in Q&A 2(a), there may be an incorrect presumption by readers of
the practitioner’s report on the first financial statements prepared
in accordance with accounting standards for private enterprises
that the practitioner has previously issued a review engagement
report on the comparative information.

7. Unless the practitioner has been specifically engaged to perform


an audit or a review of the December 31, 2010 financial statements
and the January 1, 2010 opening balance sheet prepared in
accordance with accounting standards for private enterprises,
these financial statements are not audited or reviewed.

8. There are two possible courses of action:


(a) The practitioner can be engaged to issue only a review
engagement report on the current period’s financial
statements. In such a case, the comparative information
is presented in the form of corresponding figures and the
practitioner complies with paragraph 8100.41 as discussed
in Q&A 1(h)(i). Disclosure that the comparative information
was neither audited nor reviewed should be made in a
separate and final paragraph of the review engagement report
unless disclosure of such matters is made in the financial
statements. (See Illustrative Report 2(b) in this Guide when
the practitioner’s report does not extend to the corresponding
figures and such disclosure in the financial statements is not
made.)
(b) Alternatively, the practitioner may discuss with the entity
whether the terms of the engagement need to extend to
all financial statement periods presented. In such a case,
the comparative information is presented in the form of
comparative financial statements and the review engagement
report extends to each financial statement period presented.
(Refer to paragraphs 9-12 below.)

Reporting on first financial statements on transition to accounting standards


for private enterprises when the review engagement report refers to each
period for which financial statements are presented
9. The practitioner may have agreed to undertake an engagement to
report on all financial statements presented, when such financial
statements are prepared in accordance with accounting standards
for private enterprises. If so, the practitioner is required to issue
a review engagement conclusion on all three balance sheets and
two operating periods prepared in accordance with accounting
standards for private enterprises, using the reporting approach for
comparative financial statements discussed in Q&A 2(a).

10. While the practitioner may have reviewed the financial statements
for the years ended December 31, 2010 and December 31, 2009
prepared in accordance with the pre-changeover accounting
standards, the practitioner will not have previously reviewed the
financial statements for those periods prepared in accordance with
accounting standards for private enterprises.

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

11. When reporting on the first financial statements for 2011 prepared
in accordance with accounting standards for private enterprises,
the practitioner will be reporting on the December 31, 2010
financial statements and the January 1, 2010 opening balance
sheet prepared in accordance with accounting standards for
private enterprises for the first time. Accordingly, the practitioner
will be required to perform sufficient procedures to support the
conclusion expressed in his or her review engagement report on
those financial statements.

12. The practitioner is able to use the work performed in reviewing the
financial statements for the years ended December 31, 2010 and
December 31, 2009 prepared in accordance with pre-changeover
accounting standards. However, because the comparative financial
statements are prepared in accordance with accounting standards
for private enterprises, the practitioner will have to perform
additional procedures to support the conclusion in the review
engagement report on those financial statements, even when
the financial statements prepared in accordance with accounting
standards for private enterprises do not appear to be significantly
different from those prepared in accordance with pre-changeover
accounting standards.

20
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

QUESTIONS & ANSWERS ON OTHER REPORTING


MATTERS
Q&A 2 (a) Comparative Information and Its Effect on the Auditor’s Report

Q&A 2 (b) Alerting Readers that the Financial Statements Are Prepared in
Accordance with a Special Purpose Framework

Q&A 2 (c) The Form of Auditor’s Report on Financial Statements Prepared


for a Specific Purpose in Accordance with a General Purpose
Framework

Q&A 2 (d) Reporting on Two Sets of Financial Statements

21
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 2(a) Comparative Information and Its Effect on the


Auditor’s Report
What is the difference between “comparative financial statements”
and “corresponding figures” under the CASs?
1. CAS 710, Comparative Information — Corresponding Figures and
Comparative Financial Statements, defines the terms “comparative
information”, “corresponding figures” and “comparative financial
statements” as follows:
(a) Comparative information — The amounts and disclosures
included in the financial statements in respect of one or more
prior periods in accordance with the applicable financial
reporting framework.
(b) Corresponding figures — Comparative information where
amounts and other disclosures for the prior period are included
as an integral part of the current period financial statements,
and are intended to be read only in relation to the amounts and
other disclosures relating to the current period (referred to as
"current period figures"). The level of detail presented in the
corresponding amounts and disclosures is dictated primarily by
its relevance to the current period figures.
(c) Comparative financial statements — Comparative information
where amounts and other disclosures for the prior period are
included for comparison with the financial statements of the
current period but, if audited, are referred to in the auditor's
opinion. The level of information included in those comparative
financial statements is comparable with that of the financial
statements of the current period.

2. Most financial reporting frameworks require that comparative


financial information be presented. However, a financial reporting
framework may not indicate whether the comparative information
should be in the form of corresponding figures or comparative
financial statements.

3. The following example illustrates the difference between


corresponding figures and comparative financial statements with
respect to property, plant and equipment presented in accordance
with pre-changeover standards. Property, Plant & Equipment,
paragraph 3061.38, in Part V of the CICA Handbook – Accounting
states that for each major category of property, plant and
equipment there should be disclosure of the cost and accumulated
amortization, including the amount of any write-down.
(a) When the comparative information is corresponding figures,
the relevant information for the comparative period may only
include the net book value for each major category of property,
plant and equipment.
(b) When the comparative information is comparative financial
statements, the relevant information for the comparative
period would include all the information required by the pre-
changeover accounting standards (for example, the cost and
accumulated depreciation including the amount of any write-
downs, as well as net book value for each major category of
property, plant and equipment).

22
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

4. There are two different audit reporting approaches in respect of


comparative information:
(a) For corresponding figures, the auditor's opinion on the financial
statements refers to the current period only.
(b) For comparative financial statements, the auditor's opinion
refers to each period for which financial statements are
presented.

5. Paragraph 2 of CAS 710 explains that the approach to be adopted


is often specified by law or regulation but may also be specified
in terms of engagement. In Canada, securities regulators have
specified that for reporting issuers the auditor’s opinion must
refer to each period for which financial statements are presented.
Therefore, the comparative information should be in the form of
comparative financial statements. For most other entities, the
auditor’s opinion on the financial statements refers to the current
period only and the comparative information provided is in the
form of corresponding figures, unless the auditor is otherwise
specifically engaged to report on each period for which financial
statements are presented.

6. Accordingly, it is possible that the auditor’s report on financial


statements of two identical entities using identical financial
reporting frameworks could differ depending on whether the
comparative information is presented as corresponding figures or
comparative financial statements. This is generally because with
corresponding figures the disclosures are likely to be less than the
disclosures in comparative financial statements.

7. Paragraphs 7-9 of CAS 710 require the auditor to perform the


same audit procedures for both approaches (for example,
to determine whether the financial statements include the
comparative information required by the applicable financial
reporting framework and whether such information is appropriately
classified.)

23
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 2(b) Alerting Readers that the Financial Statements


Are Prepared in Accordance with a Special Purpose
Framework
How should the auditor’s report alert readers that the financial
statements are prepared in accordance with a special purpose
framework?
Background
1. CAS 800, Special Considerations — Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks,
deals with special considerations in the application of CASs in
the 100-700 series to an audit of financial statements prepared
in accordance with a special purpose framework. A special
purpose framework is a financial reporting framework designed
to meet the financial information needs of specific users. Special
purpose financial statements are financial statements prepared in
accordance with a special purpose framework.

2. Paragraph A14 of CAS 800 indicates that special purpose financial


statements may be used for purposes other than those for which
they are intended. To avoid misunderstandings, paragraph 14 of
CAS 800 requires the auditor to alert users of the auditor’s report
that the financial statements are prepared in accordance with a
special purpose framework and, therefore, may not be suitable for
another purpose. This alert is included in an Emphasis of Matter
paragraph under an appropriate heading.

3. Paragraph A15 of CAS 800 indicates that, in addition to the alert


required by paragraph 14 of CAS 800, the auditor may consider it
appropriate to indicate that the auditor’s report is intended solely
for the specific users. This may be achieved by restricting the
distribution or use of the auditor’s report.

4. Therefore, there are four possible types of paragraph that the


auditor may use to alert readers under CAS 800. The following are
examples of the different types of possible wording (underlining
has been used to identify differences in the wording ):
(a) When the auditor does not consider it necessary to restrict
either distribution or use:
Basis of Accounting
Without modifying our opinion, we draw attention to Note
X to the financial statements, which describes the basis
of accounting. The financial statements are prepared to
assist ABC Company to comply with the financial reporting
provisions of the contract between ABC Company and DEF
Company. As a result, the financial statements may not be
suitable for another purpose.

(b) When the auditor considers it necessary to restrict use:


Basis of Accounting and Restriction on Use
Without modifying our opinion, we draw attention to Note X
to the financial statements, which describes the basis of
accounting. The financial statements are prepared to assist

24
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

ABC Company to comply with the financial reporting


provisions of the contract between ABC Company and DEF
Company. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely for
ABC Company and DEF Company and should not be used by
parties other than ABC Company or DEF Company.

(c) When the auditor considers it necessary to restrict distribution:


Basis of Accounting and Restriction on Distribution
Without modifying our opinion, we draw attention to Note X
to the financial statements, which describes the basis of
accounting. The financial statements are prepared to assist
ABC Company to comply with the financial reporting provisions
of the contract between ABC Company and DEF Company.
As a result, the financial statements may not be suitable
for another purpose. Our report is intended solely for ABC
Company and DEF Company and should not be distributed to
parties other than ABC Company or DEF Company.

(d) When the auditor considers it appropriate to restrict both


distribution and use:
Basis of Accounting and Restriction on Distribution and Use
Without modifying our opinion, we draw attention to Note X
to the financial statements, which describes the basis of
accounting. The financial statements are prepared to assist
ABC Company to comply with the financial reporting
provisions of the contract between ABC Company and DEF
Company. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely
for ABC Company and DEF Company and should not be
distributed to or used by parties other than ABC Company or
DEF Company.

5. The Illustrative Reports on special purpose financial statements in


this Guide include an Emphasis of Matter paragraph that restricts
the use of the auditor’s report (example (b) above).

25
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Q&A 2(c) The Form of Auditor’s Report on Financial


Statements Prepared for a Special Purpose in Accordance
with a General Purpose Framework
What is the form and content of the auditor’s report on financial
statements that are prepared for a specific purpose using a financial
reporting framework in the CICA Handbook – Accounting?
Background
1. CAS 800, Special Considerations — Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks,
deals with special considerations in the application of CASs in
the 100-700 series to an audit of financial statements prepared
in accordance with a special purpose framework. A special
purpose framework is a financial reporting framework designed
to meet the financial information needs of specific users. Special
purpose financial statements are financial statements prepared in
accordance with a special purpose framework.

2. An entity may prepare financial statements for a specific purpose


in accordance with a general purpose framework. For example, a
private entity may prepare non-consolidated financial statements
in accordance with Canadian accounting standards for private
enterprises (as permitted by Subsidiaries, paragraph 1590.15, in
Part II of the CICA Handbook – Accounting) to meet the expressed
needs of a bank and the income tax authorities.

[This Question will be addressed in a future issue of the Guide.]

26
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Q&A 2(d) Reporting on Two Sets of Financial Statements


Q&A 2(d)(i) What is the form of report when the auditor is engaged
to report on two sets of financial statements prepared by an entity in
accordance with two different financial reporting frameworks?
Background
1. An entity may prepare one set of financial statements in
accordance with a general purpose framework (for example,
Canadian accounting standards for private enterprises) and
another set of financial statements in accordance with another
general purpose framework (for example, International Financial
Reporting Standards), and engage the auditor to report on both
sets of financial statements.

Q&A 2(d)(ii) What is the form of report when the auditor is engaged
to report on two sets of financial statements prepared by an entity in
accordance with different accounting policy choices within the same
financial reporting framework?
2. An entity may make certain accounting policy choices in preparing
one set of financial statements in accordance with a general
purpose framework (for example, accounting for its subsidiaries
using the equity method in accordance with Subsidiaries,
paragraph 1590.15(b)(i), in Part II of the CICA Handbook –
Accounting) and make different accounting policy choices in
preparing another set of financial statements in accordance with
the same framework (for example, consolidating its subsidiaries in
accordance with paragraph 1590.15(a)), and engage the auditor to
report on both sets of financial statements.

[This Question will be addressed in a future issue of the Guide.]

27
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

ILLUSTRATIVE REPORTS

INTRODUCTION TO ILLUSTRATIVE REPORTS

1. These Illustrative Reports reflect the principles discussed in Q&A 1(b) of


this Guide.

2. The transition provisions in certain parts of the CICA Handbook –


Accounting require that the financial statements in the first year of
adoption of a new financial reporting framework contain an opening
statement of financial position. For example, for an entity with a calendar
year end, the entity’s first financial statements would include the entity’s
statements of financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening statement of financial position).
The effective date for adoption of International Financial Reporting
Standards (IFRSs) and accounting standards for private enterprises is for
interim and annual financial statements relating to fiscal years beginning
on or after January 1, 2011. Earlier application is permitted. Illustrative
Reports indicate whether the financial statements are prepared in
accordance with IFRSs or accounting standards for private enterprises
on their effective date or whether these accounting standards have been
early adopted. Illustrative Reports, based on the calendar periods referred
to above, would also be appropriate in circumstances where an entity
transitions to a new financial reporting framework at later dates, with
appropriate changes to the dates in the reports.

3. Illustrative Reports may differ depending on whether the auditor’s report


extends to the comparative information in the financial statements and
whether the auditor’s report is prepared in accordance with the reporting
requirements of Part I or Part II of the CICA Handbook – Assurance. Q&As
1(d) and 2(a) in this Guide discusses comparative information and the audit
reporting differences under the CASs depending on whether the auditor’s
opinion on the financial statements refers to the current period only or to
each period for which financial statements are presented.

4. Illustrative Reports have been grouped together into similar topics.

5. Underlining has been used, where appropriate, to help readers identify


differences in the wording of the Illustrative Reports.

28
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

FIRST FINANCIAL STATEMENTS UNDER INTERNATIONAL


FINANCIAL REPORTING STANDARDS

1(a) IFRSs Are Adopted for Financial Statement Periods Ending Prior to
December 14, 2010 — Auditor’s Report Refers to Each Period for which
Financial Statements Are Presented

1(b) IFRSs Are Adopted on the Effective Date — Auditor’s Report Refers to
Each Period for which Financial Statements are Presented

1(c) IFRSs Are Adopted on the Effective Date — Auditor’s Report Refers to
the Current Period Only

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Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

1(a) IFRSs Are Adopted for Financial Statement Periods Ending Prior to
December 14, 2010 — Auditor’s Report Refers to Each Period for
which Financial Statements Are Presented

• The financial statement period for the first financial statements


under IFRSs is the year ended December 31, 2009
• The auditor’s report refers to each period for which financial
statements are presented
• The audit is conducted in accordance with Canadian GAAS prior to
the effective date of the CASs
(Please read Introduction to Illustrative Reports)

1. The entity’s first IFRS financial statements would include the


entity’s statement of financial position as at:
(a) December 31, 2009;
(b) December 31, 2008; and
(c) January 1, 2008 (opening IFRS statement of financial position).

2. The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2008
and December 31, 2007. However, these financial statements
are not included in the first financial statements of the entity
prepared in accordance with IFRSs. Rather, the first IFRS financial
statements include the financial statements for the year ended
December 31, 2008 and the January 1, 2008 opening statement
of financial position prepared in accordance with IFRSs. Unless
specifically engaged to do so, the auditor will not have audited
and reported on these financial statements. Accordingly, in order
for the auditor’s report to refer to each period for which financial
statements are presented, the auditor would need to audit the
financial statements for the year ended December 31, 2008 and the
January 1, 2008 opening statement of financial position prepared in
accordance with IFRSs.

3. Section 5400, The Auditor’s Standard Report, requires that in


the opinion paragraph the auditor express his or her opinion as
to whether the financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the entity in accordance with Canadian GAAP. (Refer to Q&A
1(b) in this Guide for guidance on the form of opinion.)

4. This Illustrative Report is based on Example A in Assurance


and Related Services Guideline AuG-8, Auditor’s Report on
Comparative Financial Statements, which provides guidance
when the auditor’s report is extended to the comparative financial
statements.

30
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the statements of financial position of ABC Company


as at December 31, 2009, December 31, 2008 and January 1, 2008,
and the statements of comprehensive income, statements of changes
in equity and statements of cash flows for the years ended December
31, 2009 and December 31, 2008. These financial statements are the
responsibility of the company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally


accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.

In our opinion, these financial statements present fairly, in all material


respects, the financial position of ABC Company as at December
31, 2009, December 31, 2008 and January 1, 2008, and its financial
performance and its cash flows for the years ended December 31, 2009
and December 31, 2008 in accordance with International Financial
Reporting Standards.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

31
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

1(b) IFRSs Are Adopted on the Effective Date — Auditor’s Report Refers to
Each Period for which Financial Statements Are Presented

• The financial statement period for the first financial statements


under IFRSs is the year ended December 31, 2011
• The auditor’s report refers to each period for which financial
statements are presented
• The audit is conducted in accordance with Canadian Auditing
Standards
(Please read Introduction to Illustrative Reports)

1. The entity’s first IFRS financial statements would include the


entity’s statements of financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening IFRS statement of financial position).

2. The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2010
and December 31, 2009. However, these financial statements
are not included in the first financial statements of the entity
prepared in accordance with IFRSs. Rather, the first IFRS financial
statements include the financial statements for the year ended
December 31, 2010 and the January 1, 2010 opening statement
of financial position prepared in accordance with IFRSs. Unless
specifically engaged to do so, the auditor will not have audited
and reported on these financial statements. Accordingly, in order
for the auditor’s report to refer to each period for which financial
statements are presented, the auditor would need to audit the
financial statements for the year ended December 31, 2010 and the
January 1, 2010 opening statement of financial position prepared in
accordance with IFRSs.

3. Under paragraph 6(c) of CAS 710, Comparative Information —


Corresponding Figures and Comparative Financial Statements, the
comparative information is “comparative financial statements”.
Comparative financial statements are included for comparison
with the financial statements of the current period. The level of
information included in those comparative financial statements
is comparable with that of the financial statements of the current
period. This Illustrative Report is based on Illustration 4 in CAS 710.

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC


Company, which comprise the statements of financial position as at
December 31, 2011, December 31, 2010 and January 1, 2010, and the
statements of comprehensive income, statements of changes in equity
and statements of cash flows for the years ended December 31, 2011
and December 31, 2010, and a summary of significant accounting
policies and other explanatory information.

32
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of
these financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is


sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December
31, 2011, December 31, 2010 and January 1, 2010, and its financial
performance and its cash flows for the years ended December 31, 2011
and December 31, 2010 in accordance with International Financial
Reporting Standards.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

33
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

1(c) IFRSs Are Adopted on the Effective Date — Auditor’s Report Refers to
the Current Period Only

• The financial statement period for the first financial statements


under IFRSs is the year ended December 31, 2011
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian Auditing
Standards
(Please read Introduction to Illustrative Reports)

1. The entity’s first IFRS financial statements would include the


entity’s statements of financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening IFRS statement of financial position).

2. The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2010
and 2009. However, these financial statements are not included
in the first financial statements of the entity prepared under
IFRSs. Rather, the first IFRS financial statements include the
financial statements for the year ended December 31, 2010 and
the January 1, 2010 opening statement of financial position
prepared in accordance with IFRSs. Unless specifically engaged
to do so, the auditor will not have audited and reported on
these financial statements. The auditor will have performed
procedures with respect to the comparative information as
required by paragraph 7-9 of CAS 710, Comparative Information —
Corresponding Figures and Comparative Financial Statements, but
these procedures are not necessarily themselves sufficient for the
auditor to opine on the comparative information.

3. Under paragraph 6(b) of CAS 710 the comparative information is


“corresponding figures”. Corresponding figures are amounts and
disclosures for the prior period included as an integral part of the
current period financial statements. The level of detail presented in
the corresponding amounts and disclosures is dictated primarily by
its relevance to the current period figures. This Illustrative Report is
based on Illustration 3 in CAS 710.

4. The auditor’s report indicates that the corresponding figures


are unaudited in an Other Matter paragraph in accordance with
paragraph 14 of CAS 710 in order to clearly indicate to readers that
the December 31, 2010 financial statements and the January 1, 2010
opening statement of financial position prepared in accordance
with IFRSs have not been audited.

34
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC


Company, which comprise the statement of financial position as at
December 31, 2011, and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the
year then ended, and a summary of significant accounting policies and
other explanatory information.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of
these financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and


appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December 31,
2011, and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.

35
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Other Matter
The statements of financial position as at December 31, 2010 and
January 1, 2010, and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the
year ended December 31, 2010, are unaudited.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

36
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

FIRST FINANCIAL STATEMENTS UNDER CANADIAN


ACCOUNTING STANDARDS FOR PRIVATE ENTERPRISES

2(a) Accounting Standards for Private Enterprises Are Adopted for Financial
Statement Periods Ending Prior to December 14, 2010 — Auditor’s
Report Refers to the Current Period Only

2(b) Accounting Standards for Private Enterprises Are Adopted for Financial
Statement Periods Ending Prior to December 14, 2010 — Review
Engagement Report Refers to the Current Period Only

2(c) Accounting Standards for Private Enterprises Are Adopted on the


Effective Date — Auditor’s Report Refers to Each Period for which
Financial Statements Are Presented

2(d) Accounting Standards for Private Enterprises Are Adopted on the


Effective Date — Auditor’s Report Refers to the Current Period Only

37
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

2(a) Accounting Standards for Private Enterprises Are Adopted for


Financial Statement Periods Ending Prior to December 14, 2010 —
Auditor’s Report Refers to the Current Period Only

• The financial statement period for the first financial statements


under accounting standards for private enterprises is the year
ended December 31, 2009
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian GAAS prior
to the effective date of the CASs
• The corresponding figures are not marked as unaudited
• The fact that the corresponding figures are unaudited is not
disclosed in the notes to the financial statements
(Please read Introduction to Illustrative Reports)

1. The entity’s first accounting standards for private enterprises


financial statements would include the entity’s balance sheet as at:
(a) December 31, 2009;
(b) December 31, 2008; and
(c) January 1, 2008 (opening accounting standard for private
enterprise balance sheet).

2. The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2008 and
December 31, 2007. However, these financial statements are not
included in the first financial statements of the entity prepared
under accounting standards for private enterprises. Rather, the first
accounting standard for private enterprise financial statements
include the financial statements for the year ended December 31,
2008 and the January 1, 2008 opening balance sheet prepared
in accordance with accounting standards for private enterprises.
Unless specifically engaged to do so, the auditor will not have
audited and reported on these financial statements.

3. Section 5701, Other Reporting Matters, states that where financial


statements include unaudited comparative figures for a prior
period, they should preferably be clearly marked as unaudited in
order to make it clear that the auditor’s opinion does not extend
to them. If the comparative figures are not marked as unaudited,
disclosure should be made, either in the notes to the financial
statements or in the auditor’s report following the opinion
paragraph, that the auditor has not examined, and does not
express an opinion on, the financial statements for the preceding
period.

4. Because the financial statements are for the year ended December
31, 2009 (i.e., before the effective date of the CASs), the audit is
conducted in accordance with Canadian GAAS in effect before
the effective date of the CASs. Section 5400, The Auditor’s
Standard Report, requires that in the opinion paragraph the auditor
express his or her opinion as to whether the financial statements
present fairly, in all material respects, the financial position, results
of operations and cash flows of the entity in accordance with

38
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Canadian GAAP. (Refer to Q&A 1(b) in this Guide for guidance on


the form of opinion.)

AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the balance sheet of ABC Company as at


December 31, 2009 and the statements of income, retained earnings
and cash flows for the year then ended. These financial statements are
the responsibility of the company’s management. Our responsibility is
to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally


accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.

In our opinion, these financial statements present fairly, in all material


respects, the financial position of ABC Company as at December 31,
2009 and the results of its operations and its cash flows for the year
then ended in accordance with Canadian accounting standards for
private enterprises.

We have not audited, and do not express an opinion on, the balance
sheets as at December 31, 2008 and January 1, 2008, and the
statements of income, retained earnings and cash flows for the year
ended December 31, 2008.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

39
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

2(b) Accounting Standards for Private Enterprises Are Adopted for


Financial Statement Periods Ending Prior to December 14, 2010 —
Review Engagement Report Refers to the Current Period Only

• The financial statement period for the first financial statements


under accounting standards for private enterprises is the year
ended December 31, 2009
• The review engagement report refers to the current period only
• The review is conducted in accordance with Section 8200, Public
Accountant’s Review of Financial Statements
• The fact that the corresponding figures are neither audited nor
reviewed is not disclosed in the financial statements
(Please read Introduction to Illustrative Reports)

1. The entity’s first accounting standard for private enterprise


financial statements would include the entity’s balance sheet as at:
(a) December 31, 2009;
(b) December 31, 2008; and
(c) January 1, 2008 (opening accounting standard for private
enterprise balance sheet).

2. The public accountant may have performed a review of the entity’s


financial statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2008
and 2007. However, these financial statements are not included in
the first financial statements of the entity prepared in accordance
with accounting standards for private enterprises. Rather, the first
accounting standard for private enterprise financial statements
include the financial statements for the year ended December 31,
2008 and the January 1, 2008 opening balance sheet prepared
in accordance with accounting standards for private enterprises.
Unless specifically engaged to do so, the public accountant will not
have reviewed and reported on these financial statements.

3. General Review Standards, paragraph 8100.41, requires that when


comparative figures were neither audited nor reviewed, and
disclosure of such matters is not made in the information on which
the public accountant reports, disclosure should be made in a
separate and final paragraph of the review engagement report.

4. General Review Standards, paragraph 8100.15, requires that in


the negative assurance paragraph, the public accountant should
express negative assurance as to whether the financial statements
are, in all material respects, in accordance with appropriate criteria.
(Refer to the Q&A 1(b) in this Guide for guidance on the form of
report.)

40
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

REVIEW ENGAGEMENT REPORT

[Appropriate Addressee]

We have reviewed the balance sheet of ABC Company as at


December 31, 2009 and the statements of income, retained earnings
and cash flows for the year then ended. Our review was made in
accordance with Canadian generally accepted standards for review
engagements and, accordingly, consisted primarily of inquiry, analytical
procedures and discussion related to information supplied to us by the
company.

A review does not constitute an audit and, consequently, we do not


express an audit opinion on these financial statements.

Based on our review, nothing has come to our attention that causes
us to believe that these financial statements are not, in all material
respects, in accordance with Canadian accounting standards for private
enterprises.

The balance sheets as at December 31, 2008 and January 1, 2008, and
the statements of income, retained earnings and cash flows for the year
ended December 31, 2008, are neither audited nor reviewed.

[Public accountant’s signature]


[Date of the review engagement report]
[Public accountant’s address]

41
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

2(c) Accounting Standards for Private Enterprises Are Adopted on the


Effective Date — Auditor’s Report Refers to Each Period for which
Financial Statements Are Presented

• The financial statement period for the first financial statements


under accounting standards for private enterprises is the year
ended December 31, 2011
• The auditor’s report refers to each period for which financial
statements are presented
• The audit is conducted in accordance with Canadian Auditing
Standards
(Please read Introduction to Illustrative Reports)

1 The entity’s first accounting standards for private enterprises


financial statements would include the entity’s balance sheets as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening accounting standard for private
enterprise balance sheet).

2 The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2010 and
2009. However, these financial statements are not included in the
first financial statements of the entity prepared in accordance
with accounting standards for private enterprises. Rather, the first
accounting standard for private enterprise financial statements
include the financial statements for the year ended December 31,
2010 and the January 1, 2010 opening balance sheet prepared in
accordance with accounting standards for private enterprises.
Unless specifically engaged to do so, the auditor will not have
audited and reported on these financial statements. Accordingly,
in order for the auditor’s report to refer to each period for which
financial statements are presented, the auditor would need to audit
the financial statements for the year ended December 31, 2010 and
the January 1, 2010 opening balance sheet prepared in accordance
with accounting standards for private enterprises.

3 Under paragraph 6(c) of CAS 710, Comparative Information —


Corresponding Figures and Comparative Financial Statements, the
comparative information is “comparative financial statements”.
Comparative financial statements are included for comparison
with the financial statements of the current period. The level of
information included in those comparative financial statements
is comparable with that of the financial statements of the current
period. This Illustrative Report is based on Illustration 4 in CAS 710.

42
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC


Company, which comprise the balance sheets as at December 31, 2011,
December 31, 2010 and January 1, 2010, and the statements of income,
retained earnings and cash flows for the years ended December 31,
2011 and December 31, 2010, and a summary of significant accounting
policies and other explanatory information.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation
of these financial statements in accordance with Canadian accounting
standards for private enterprises, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is


sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December 31,
2011, December 31, 2010 and January 1, 2010, and the results of its
operations and its cash flows for the years ended December 31, 2011
and December 31, 2010 in accordance with Canadian accounting
standards for private enterprises.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

43
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

2(d) Accounting Standards for Private Enterprises Are Adopted on the


Effective Date — Auditor’s Report Refers to the Current Period Only

• The financial statement period for the first financial statements


under accounting standards for private enterprises is the year
ended December 31, 2011
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian Auditing
Standards
(Please read Introduction to Illustrative Reports)

1. The entity’s first accounting standards for private enterprises


financial statements would include the entity’s balance sheet as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening accounting standard for private
enterprise balance sheet).

2. The auditor may have performed an audit of the entity’s financial


statements prepared in accordance with pre-changeover
accounting standards for the years ended December 31, 2010 and
December 31, 2009. However, these financial statements are not
included in the first financial statements of the entity prepared
in accordance with accounting standards for private enterprises.
Rather, the first accounting standard for private enterprise financial
statements include the financial statements for the year ended
December 31, 2010 and the January 1, 2010 opening balance sheet
prepared in accordance with accounting standards for private
enterprises. Unless specifically engaged to do so, the auditor will
not have audited and reported on these financial statements.
The auditor will have performed procedures with respect to the
comparative information as required by paragraphs 7-9 of CAS
710, Comparative Information — Corresponding Figures and
Comparative Financial Statements, but these procedures are not
necessarily themselves sufficient for the auditor to opine on the
comparative information.

3. Under paragraph 6(b) of CAS 710, these figures are “corresponding


figures”. Corresponding figures are amounts and disclosures
for the prior period included as an integral part of the current
period financial statements. The level of detail presented in the
corresponding amounts and disclosures is dictated primarily by its
relevance to the current period figures. This Illustrative Report is
based on Illustration 3 in CAS 710.

4. The auditor’s report indicates that the corresponding figures


are unaudited in an Other Matter paragraph in accordance with
paragraph 14 of CAS 710 in order to clearly indicate to readers that
the December 31, 2010 financial statements and the January 1, 2010
opening balance sheet prepared in accordance with accounting
standards for private enterprises have not been audited.

44
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC


Company, which comprise the balance sheet as at December 31, 2011,
and the statements of income, retained earnings and cash flows for the
year then ended, and a summary of significant accounting policies and
other explanatory information.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation
of these financial statements in accordance with Canadian accounting
standards for private enterprises, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and


appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December 31,
2011, and the results of its operations and its cash flows for the year
then ended in accordance with Canadian accounting standards for
private enterprises.

45
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

Other Matter
The balance sheets as at December 31, 2010 and January 1, 2010, and
the statements of income, retained earnings and cash flows for the year
ended December 31, 2010, are unaudited.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

46
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

SPECIAL PURPOSE FINANCIAL STATEMENTS

3(a) Pension Fund Financial Statements Filed with a Regulator — Auditor’s


Report

3(b) Financial Statements Prepared in Accordance with the Terms of a


Purchase and Sale Agreement — Auditor’s Report

3(c) Financial Statements of a Co-operative Housing Association Filed with


Canada Mortgage and Housing Corporation — Auditor’s Report

47
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

3(a) Pension Fund Financial Statements Filed with a Regulator — Auditor’s


Report

• The financial statements are for the year ended December 31, 2010
to meet the expressed needs of the pension regulator
• The financial reporting framework is prescribed by law or
regulation, which requires the financial statements to be prepared
in accordance with pre-changeover standards except that they
exclude disclosures relating to pension obligations. This example
is also relevant if the financial reporting framework prescribed by
law or regulation requires the financial statements to be prepared
in accordance with Part IV of the CICA Handbook – Accounting.
(Refer to Q&A 1(c) in this Guide for the wording of the opinion
paragraph for different financial reporting frameworks.)
• The financial statements describe the financial reporting
framework by reference to the financial reporting provisions of the
respective legislation or regulation
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian Auditing
Standards
• Use of the auditor’s report is restricted but distribution of the
auditor’s report is not restricted. Other choices are permitted.
(Refer to Q&A 2(b) in this Guide for the permitted choices.)
(Please read Introduction to Illustrative Reports)

1. These are special purpose financial statements because the


financial reporting framework used in preparing the financial
statements is designed to meet the needs of specific users, as
discussed in paragraph 6 of CAS 800, Special Considerations —
Audits of Financial Statements Prepared in Accordance with Special
Purpose Frameworks. Accordingly, the special considerations in
CAS 800 apply.

2. Because the financial reporting framework comprises financial


reporting standards established by an authorized or recognized
standards setting organization, supplemented by law or regulation,
the auditor considers the requirements in paragraph 18 of CAS
210, Agreeing the Terms of Audit Engagements. One of the
considerations in accepting the engagement will be whether the
description of the applicable financial reporting framework in the
financial statements is amended accordingly, (i.e., the description
of the framework does not imply full compliance with pre-
changeover accounting standards).

3. Paragraph A6 of CAS 800 applies. In the absence of indications


to the contrary, a financial reporting framework established by a
regulator for a certain type of entity to meet the financial reporting
requirements of that regulator is presumed acceptable for special
purpose financial statements prepared by such an entity.

4. It has been assumed that this is a fair presentation framework on


the basis that:
(a) the financial reporting standards on which the financial
reporting framework is based explicitly or implicitly

48
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

acknowledge that it may be necessary for management to


provide disclosures beyond those specifically required by the
framework (see, for example, General Standards of Financial
Statement Presentation, paragraph 1400.04, in Parts II and V of
the CICA Handbook – Accounting);
(b) the special purpose framework is not a framework discussed
in paragraph A3 of CAS 800 (i.e., a special purpose framework
that does not comply with all the requirements of the
financial reporting framework established by the authorized
or recognized standards setting organization or by law or
regulation that are necessary to achieve fair presentation of the
financial statements).

INDEPENDENT AUDITOR’S REPORT

[Trustees of ABC Pension Plan]

We have audited the accompanying financial statements of the fund


of ABC Pension Plan, which comprise the statement of net assets
available for benefits as at December 31, 2010, and the statement
of changes in net assets available for benefits for the year then
ended, and a summary of significant accounting policies and other
explanatory information. The financial statements have been prepared
by management based on the financial reporting provisions of Section
X of the Y Act.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the financial reporting
provisions of Section X of the Y Act, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on

49
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

the effectiveness of the entity’s internal control. An audit also includes


evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and


appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the net assets available for benefits of ABC Pension Plan as at
December 31, 2010, and the changes in net assets available for benefits
for the year then ended in accordance with the financial reporting
provisions of Section X of the Y Act.

Basis of Accounting and Restriction on Use


Without modifying our opinion, we draw attention to Note Z to the
financial statements, which describes the basis of accounting. The
financial statements are prepared to assist ABC Pension Plan to
meet the requirements of Pension Regulator. As a result, the financial
statements may not be suitable for another purpose. Our report is
intended solely for the Trustees of ABC Pension Plan and Pension
Regulator and should not be used by parties other than the Trustees of
ABC Pension Plan or Pension Regulator.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

50
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

3(b) Financial Statements Prepared in Accordance with the Terms of a


Purchase and Sale Agreement — Auditor’s Report

• The financial statements are for the year ended December 31, 2010
to meet the expressed needs of the parties to the purchase and
sale agreement
• The financial reporting framework is prescribed by the purchase
and sale agreement, which requires the financial statements to
be prepared in accordance with pre-changeover standards except
that the property has been valued at appraised values rather than
in accordance with the accounting standards. This example is also
relevant if the financial reporting framework prescribed by the
purchase and sale agreement requires the financial statements
to be prepared in accordance with other Parts of the CICA
Handbook – Accounting. (Refer to Q&A 1(c) in this Guide for the
wording of the opinion paragraph for different financial reporting
frameworks.)
• The financial statements describe the financial reporting
framework by reference to the financial reporting provisions of the
purchase and sale agreement
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian Auditing
Standards
• Use of the auditor’s report is restricted and distribution of the
auditor’s report is not restricted. Other choices are permitted.
(Refer to Q&A 2(b) in this Guide for the permitted choices.)
(Please read Introduction to Illustrative Reports)

1. These are special purpose financial statements because the


financial reporting framework used in preparing the financial
statements is designed to meet the needs of specific users, as
discussed in paragraph 6 of CAS 800, Special Considerations —
Audits of Financial Statements Prepared in Accordance with Special
Purpose Frameworks. Accordingly, the special considerations in
CAS 800 apply.

2. Paragraph A8 of CAS 800 applies to this situation. The financial


reporting framework is acceptable if it exhibits the attributes
normally exhibited by acceptable financial reporting frameworks as
described in Appendix 2 to CAS 210, Agreeing the Terms of Audit
Engagements.

3. It has been assumed that this is a fair presentation framework on


the basis that:
(a) the financial reporting standards on which the financial
reporting framework is based explicitly or implicitly
acknowledge that it may be necessary for management to
provide disclosures beyond those specifically required by the
framework (see, for example, General Standards of Financial
Statement Presentation, paragraph 1400.04, in Parts II and V of
the CICA Handbook – Accounting);
(b) the special purpose framework is not a framework discussed
in paragraph A3 of CAS 800 (i.e., a special purpose framework
that does not comply with all the requirements of the

51
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

financial reporting framework established by the authorized


or recognized standards setting organization or by law or
regulation that are necessary to achieve fair presentation of the
financial statements).

INDEPENDENT AUDITOR’S REPORT

[Directors of ABC Company]

We have audited the accompanying financial statements of ABC


Company, which comprise the balance sheet as at December 31, 2010,
and the statements of income, retained earnings and cash flows for
the year then ended, and a summary of significant accounting policies
and other explanatory information. The financial statements have been
prepared by management based on the financial reporting provisions
of Section X of the purchase and sale agreement between ABC
Company and DEF Company.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the financial reporting
provisions of Section X of the purchase and sale agreement between
ABC Company and DEF Company, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and


appropriate to provide a basis for our audit opinion.

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December 31,
2010, and the results of its operations and its cash flows for the year
then ended in accordance with the financial reporting provisions of
Section X of the purchase and sale agreement between ABC Company
and DEF Company.

Basis of Accounting and Restriction on Use


Without modifying our opinion, we draw attention to Note Y to the
financial statements, which describes the basis of accounting. The
financial statements are prepared to assist ABC Company to comply
with the reporting provisions of the purchase and sale agreement
referred to above. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely for the
Directors of ABC Company and DEF Company and should not be used
by parties other than the Directors of ABC Company or DEF Company.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

53
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

3(c) Financial Statements of a Co-operative Housing Association Filed with


Canada Mortgage and Housing Corporation — Auditor’s Report

• The financial statements are for the year ended December 31,
2010 to meet the expressed needs of Canada Mortgage and
Housing Corporation (CMHC) under the terms of the mortgage
agreement
• The financial reporting framework is prescribed by the mortgage
agreement, which requires the financial statements to be
prepared in accordance with pre-changeover standards except
that the property has been amortized at a rate equal to the annual
principal reduction on the mortgage rather than in accordance
with the accounting standards; capital assets purchased from
accumulated surplus are charged to operations in the year the
expenditure is incurred, and capital assets purchased from the
replacement reserve are charged against the replacement reserve
account, rather than being capitalized on the balance sheet
and amortized over their estimated useful lives; and, a reserve
for future capital replacement is appropriated annually from
operations. (Refer to Q&A 1(c) in this Guide for the wording of the
opinion paragraph for different financial reporting frameworks.)
• The financial statements describe the financial reporting
framework by reference to the financial reporting provisions of
the mortgage agreement with CMHC
• The auditor’s report refers to the current period only
• The audit is conducted in accordance with Canadian Auditing
Standards
• Use of the auditor’s report is restricted but distribution of the
auditor’s report is not restricted. Other choices are permitted.
(Refer to Q&A 2(b) in this Guide for the permitted choices.)
(Please read Introduction to Illustrative Reports)

1. These are special purpose financial statements because the


financial reporting framework used in preparing the financial
statements is designed to meet the needs of specific users, as
discussed in paragraph 6 of CAS 800, Special Considerations —
Audits of Financial Statements Prepared in Accordance with Special
Purpose Frameworks. Accordingly, the special considerations in
CAS 800 apply.

2. Because the financial reporting framework comprises financial


reporting standards established by an authorized or recognized
standards setting organization, supplemented by law or regulation,
the auditor considers the requirements in paragraph 18 of CAS
210, Agreeing the Terms of Audit Engagements. One of the
considerations in accepting the engagement will be whether the
description of the applicable financial reporting framework in the
financial statements is amended accordingly, (i.e., the description
of the framework does not imply full compliance with pre-
changeover accounting standards).

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ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

3. Paragraph A8 of CAS 800 applies to this situation. The financial


reporting framework is acceptable if it exhibits the attributes
normally exhibited by acceptable financial reporting frameworks as
described in Appendix 2 to CAS 210.

4. It has been assumed that this is a fair presentation framework on


the basis that:
(a) the financial reporting standards on which the financial
reporting framework is based explicitly or implicitly
acknowledge that it may be necessary for management to
provide disclosures beyond those specifically required by the
framework (see, for example, General Standards of Financial
Statement Presentation, paragraph 1400.04, in Parts II and V of
the CICA Handbook – Accounting);
(b) the special purpose framework is not a framework discussed
in paragraph A3 of CAS 800 (i.e., a special purpose framework
that does not comply with all the requirements of the
financial reporting framework established by the authorized
or recognized standards setting organization or by law or
regulation that are necessary to achieve fair presentation of the
financial statements).

INDEPENDENT AUDITOR’S REPORT

[Directors of ABC Housing Co-operative]

We have audited the accompanying financial statements of ABC


Housing Co-operative, which comprise the balance sheet as at
December 31, 2010, and the statements of income, retained earnings
and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information. The financial
statements have been prepared by management based on the financial
reporting provisions of Section X of the mortgage agreement between
ABC Housing Co-operative and Canada Mortgage and Housing
Corporation (CMHC).

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the financial reporting
provisions of Section X of the mortgage agreement between ABC
Housing Co-operative and CMHC, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

55
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

An audit involves performing procedures to obtain audit evidence


about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and


appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Housing Co-operative as at
December 31, 2010, and the results of its operations and its cash flows
for the year then ended in accordance with the financial reporting
provisions of Section X of the mortgage agreement between ABC
Housing Co-operative and CMHC.

Basis of Accounting and Restriction on Use


Without modifying our opinion, we draw attention to Note Y to the
financial statements, which describes the basis of accounting. The
financial statements are prepared to assist ABC Housing Co-operative
to comply with the reporting provisions of the mortgage agreement
referred to above. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely for the
Directors of ABC Housing Co-operative and CMHC and should not be
used by parties other than the Directors of ABC Housing Co-operative
or CMHC.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

56
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

SUMMARY OF CHANGES TO THIS GUIDE


This section of the Guide summarizes new material, or changes to existing
material, in each edition.

Highlights of the changes between the 1st edition (June 2010) and the 2nd
edition (September 2010)

• The title of this Guide has been changed to reflect that it includes
guidance relating to engagements other than audits of financial
statements. Some related editorial changes have also been made to the
Introduction.
• The Q&As have been reorganized into two separate groups dealing with
reporting on new accounting frameworks and other reporting matters. As
a result, Q&As in the 1st edition have been renumbered as follows:

Q&A in 1st Edition Q&A in 2nd Edition


1 1(a)
2 1(b)
3A 2(a)
3B 1(d)
4 1(e)
5 1(f)
6 1(c)
7 1(g)

• Q&A 1(b) has been revised to add a new paragraph 1 explaining the
difference between Parts I and II of the CICA Handbook – Assurance
with respect to the specification of financial reporting frameworks for
general purpose financial statements. An editorial change has been made
to paragraph 3. The guidance in paragraphs 3 and 4 has been expanded
to include guidance on how the practitioner should refer to the financial
reporting framework in the auditor’s report when the financial statements
have been prepared in accordance with Canadian accounting standards
for pension plans or in accordance with accounting standards in the CICA
Public Sector Accounting Handbook.
• Q&A 1(c) has been revised to add paragraphs 8-12 dealing with the
description in the opinion paragraph of the auditor’s report of the
information the financial statements are designed to present when the
financial statements are prepared in accordance with various financial
reporting frameworks in the CICA Handbook – Accounting and the CICA
Public Sector Accounting Handbook.
• Q&A 1(e) has been revised to make an editorial change to paragraph 4 and
add paragraph 7 dealing with the description of the financial reporting
framework in the public accountant’s review engagement report.
• Q&A 1(g) has been revised to add guidance dealing with reference to
Canadian GAAP in the auditor’s report when financial statements are
prepared in accordance with a new financial reporting framework.
• Q&A 1(h), The Review Engagement Report on the First Financial
Statements Prepared in Accordance with Accounting Standards for Private
Enterprises, has been added.

57
Reporting Implications of New Auditing and Accounting Standards ISSUE No. 2 — September 2010

• Q&A 2(b), Alerting Readers that the Financial Statements are Prepared in
Accordance with a Special Purpose Framework, has been added.
• Q&A 2(c), The Form of Auditor’s Report on Financial Statements Prepared
for a Special Purpose in Accordance with a General Purpose Framework,
has been added.
• Q&A 2(d), Reporting on Two Sets of Financial Statements, has been
added.
• The Introduction to Illustrative Reports has been revised in paragraph 2
to indicate that Illustrative Reports relating to transition to a new financial
reporting framework in the CICA Handbook – Accounting based on the
calendar periods dealt with in those reports would also be appropriate
in circumstances where an entity transitions to a new financial reporting
framework at later dates, with appropriate changes to the dates in the
reports.
• Illustrative Report 2(b) has been revised to conform the bullets introducing
the example more precisely with the requirements of General Review
Standards, paragraph 8100.41.
• Illustrative Reports on Special Financial Statements, Reports 3(a)-3(c),
have been added.

58
ISSUE No. 2 — September 2010 Reporting Implications of New Auditing and Accounting Standards

TASK FORCE ON AUDIT REPORTING IMPLICATIONS OF NEW


CANADIAN AUDITING STANDARDS

Member Organization
Kenneth M. Krauss (Chair) Deloitte & Touche LLP
Gord Briggs Ernst & Young LLP
Sophie Gaudreault PricewaterhouseCoopers LLP
Jules J. Hawkins Howie and Partners LLP
Claudia Leonardi KPMG LLP
Dave Rasmussen BDO Canada LLP
Christine Regimbal Raymond Chabot Grant Thornton LLP
Gregg Ruthman Office of the Auditor General
of Canada

Observer
Mark Pinch Ontario Securities Commission

Staff
Eric R. Turner The Canadian Institute of
Chartered Accountants

59